Breaking the Hamster Wheel: Unleashing Procurement’s Full Potential
With the US Labor Day (and therefore the unofficial end of summer) behind us, most organizations are going into planning for 2024 (or their own off calendar year fiscal version thereof). While most organizations have a structured approach to create plans for generating client revenues, there is a strong focus on managing the cost side of the business. Enter procurement. All category teams, including marketing procurement, are asked to present short term/ tactical as well as longer term/ strategic cost savings opportunities for their categories. The teams spend valuable time on identifying and building business cases for these plans. And yet, many of the projects are rarely funded. Funnily enough the teams are still asked to deliver the value, efficiencies, and savings to the organization. Without the investment.
Why is it that procurement (focus here is indirect, and more specifically marketing procurement) is often seen as a “nice to have” rather than a “need to have”? Why is marketing procurement often seen as road blockers with limited marketing knowledge that do not understand how to work with marketing partners?
Let’s start from the beginning.
Generally, there is a long-standing perception issue with procurement — albeit more so on the indirect side of procurement. They are seen as a low value, savings focused group that is more of a hindrance than support within client organizations. This old school thinking stems from the fact that while sourcing of direct materials has been around since the industrialization era, indirect purchasing (or sourcing) is considered a much newer focus. As the indirect side of procurement developed, many of the same strategies, tools and thinking were brought over to the indirect side, with limited customization. Many of the brilliant buyers from the direct side were tempted to try their luck on the indirect side and moved across to the other side. The issue is that while you can buy most direct materials with well thought out tools and processes that have been tested, researched, and delivered over time, this does not work well on the indirect side. While successful tools on the direct side include volume consolidation, longer-term contracts, offshoring, multi-vendor competition and visibility into the supply chain costs, few of these will provide any long terms success on the indirect side.
The Hamster Wheel Effect.
When we think of the vast amounts of effort to change how indirect procurement is perceived and how the group is working, it is a bit like the hamster running endlessly without getting anywhere. I have come across many indirect procurement professionals that find themselves trying to implement changes repeatedly without achieving meaningful transformation. Despite investing time, and resources, the desired outcomes, such as increased efficiency, better operations, reduced costs, or improved supplier relationships, are not realized.
While organizations invest in well-trained and highly skilled people with category experience, the indirect procurement teams often are tasked with delivering only solutions that don’t address the root causes of problems, while ignoring key issues like misalignment with organizational goals or common KPIs, resistance to change from other areas of the organization or lack of executive support. Many of these issues can be derived from the perception of procurement — it is a necessity to have, but let’s confine procurement “to its wheel”, disconnected from strategic business objectives. This and the resulting lack of value that procurement can bring is often underestimated, leads to a scenario where its potential is never fully realized.
How to break the hamster wheel.
Strategic Alignment: Aligning indirect procurement with overall business strategy and goals can free it from the hamster wheel.
Executive Support: Gaining commitment from top management is essential to move procurement from a “nice to have” to a “need to have.”
Innovation and Technology: Embracing new methods, processes, and technologies can be the key to moving beyond repetitive patterns.
Monitoring and Continuous Improvement: Regularly assessing progress, learning from failures, and making iterative improvements can ensure that procurement does not fall back into the cycle.
Explore common barriers that have kept procurement from realizing its full potential.
We can do this.
While nothing of the above is new news to most procurement folks, we need to change the mind set of our business leaders who manage the “other side”. This can be Marketing, often a large size of indirect marketing spend, People Management, which manages another significant part of the indirect spend volume. The list can be longer, but you understand our point.
Let’s work together in our planning sessions. Invite procurement to the table upfront, so they can then deliver operating results together with every stakeholder they work with.
